DFI is known for the Development Finance Institute. It is generally created to fund development projects in developing countries. These banks get their capital from the National or International Development Fund. With this, funds are provided at a competitive rate in different development plans. In the year 2017, RBI had told that such financial bank will help India's fast growing economy to meet the finance related needs in the long term. Not only this, the funding gap can also be reduced in the long run. This means that with the advent of Development Finance Institute, it will be easy to solve the social, cultural, regional, rural and environmental concerns of the country. The Central Government has announced the formation of Development Finance Institute to strengthen the infrastructure of the country. After the announcement made in the budget regarding this, today it has got approval from the cabinet. This move of the government is being considered very positive. Because, banks do not have long term capital to fund housing projects and other such projects. Development Finance Institute focuses on financing the projects of certain sectors. Banks cannot provide loans to projects that are built for a long time, as this reduces their loan capacity. It strikes a balance between the operational norms of commercial banks, with commercial banks on the one hand and developmental responsibilities on the other. DFIs are not just plain lenders like commercial banks, but they also act as aids in the development of important sectors of the economy.
Classification of Development Financial Institution
Sector Specific Financial Institutions: These financial institutions focus on providing finance to projects in a particular sector.
Investment Institutions: These work to provide services designed to facilitate business operations.
Why does India need DFI for infrastructure related finance?
This will increase capital flows and activate capital markets to promote economic growth. To improve long term finance. To increase the availability of credit for infrastructure and housing projects. As India does not have a development bank, DFI will fulfill the need of an institutional mechanism for the country. Credit flow for infrastructure related projects will be improved. RBI had also specified in the year 2017 that specialized banks can not only meet the long-term financing needs of the rapidly growing Indian economy but also fill the existing gap in long-term financing. Thus it would be wise to revive the concept of DFI if the government wants to address the social, cultural, regional, rural and environmental concerns of the country.